Lloyd’s warns industry of stranded assets on global scale

New study says climate change could impact assets and liabilities of re/insurers

Lloyd’s warns industry of stranded assets on global scale

Insurance News

By Louie Bacani

The insurance industry could face asset-stranding and liabilities on a global scale due to climate change, Lloyd’s has warned in a new report.
The latest study examines how public and technological responses to climate change could affect assets and liabilities in the re/insurance sector. It looks at the impact of climate change-related regulation and taxation policies and how they could create stranded assets.
Stranded assets are those that have suffered from unanticipated or premature write-downs, devaluation or conversion to liabilities. The Lloyd’s report found this to be especially relevant for re/insurers exposed to vulnerable carbon-based assets and liabilities in the energy, commercial property and shipping sectors.

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According to Lloyd’s, climate change and society’s response to the phenomenon could potentially strand entire regions and global industries within a short timeframe, leading to impacts on investment strategies and liabilities.
Lloyd’s is urging insurance firms to stress-test their investment portfolios to paint a picture of exposure to stranded assets and consider the environmental characteristics of investments. Insurers should also get involved in developing climate risk legislation.
“As governments across the globe put in place frameworks to address the causes of climate change, insurers and reinsurers need to ensure they are not caught out on the wrong side of the debate,” said Trevor Maynard, head of innovation at Lloyd’s.
“This study illustrates the importance of considering how climate change could impact the value of your assets, but more than that, it encourages the insurance industry to play a pro-active role in the development of policies and regulation with the knowledge and expertise that exists in this field.”
Lloyd’s carried out its new research in partnership with the Smith School of Enterprise and the Environment at the University of Oxford.
“Insurers and reinsurers price environment-related risks in their insurance policies but don’t always apply these same principles to their investments,” said Ben Caldecott, director of the sustainable finance programme at Oxford.
“Doing so would help avoid stranded assets and ensure investments are appropriately protected in order to meet liabilities,” he added.


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